Export credit guarantee
An export credit guarantee is official support provided by or on behalf of a government that covers a bank or exporter against non-payment risks on an export credit. Under the OECD Arrangement, export credit guarantee or insurance is labelled pure cover: it is official support without official financing support such as direct credit, refinancing or interest-rate support.
Export credit guarantee use on bank EF desks
On bank export finance desks an export credit guarantee is the credit-risk mitigation instrument that allows a commercial lender to fund an overseas buyer or to purchase exporter receivables when private market cover is insufficient. Germany's federal export credit guarantees (Hermes Cover) protect exporters and banks against commercial and political payment defaults. The scheme's official materials state that a large part of the payment default risk is transferred to the Federal Republic of Germany, against a premium calculated on the basis of the risk involved, with compensation paid if a covered loss arises.
UKEF's Buyer Credit Facility is a concrete bank-facing form: a guarantee to a bank making a loan to an overseas buyer so that UK capital goods, services or intangibles can be purchased. The bank is protected against non-payment of principal and interest instalments under the guaranteed loan. That structure is a buyer credit guarantee within the wider export credit guarantee category.
Institutional scope under the Arrangement and national schemes
The Arrangement applies to official support for exports of goods and/or services with a repayment term of two years or more. Official support may be:
- export credit guarantee or insurance (pure cover)
- official financing support (direct credit/financing and refinancing, or interest-rate support)
- any combination of those forms
An export credit agency may therefore guarantee a commercial loan, insure an exporter receivable, or combine cover with direct lending. German federal materials state that export credit guarantees supplement private-sector credit insurance and are used mainly where private cover is unavailable or insufficient, concentrating on emerging and developing markets. Eligibility turns on whether the transaction is considered worthy of support and whether the risk level is acceptable, including a realistic prospect of loss-free execution.
Premium pricing for Participants' pure cover sits inside Arrangement minimum premium rate disciplines. Product quality and percentage of cover affect those rates. National schemes still set eligibility, documentation and claims mechanics: Hermes cover is Germany's federal brand; UKEF and peers use their own guarantee and insurance forms.
Guarantee versus insurance and financing support
In Arrangement vocabulary, guarantee and insurance are both pure cover. Market practice still distinguishes them: a guarantee often pays the bank under a loan agreement; insurance often indemnifies the exporter (or an insured bank) under a policy. Official financing support is separate: the government or its agent advances or refinances funds, or supports a fixed interest rate, rather than only covering credit risk.
Comprehensive cover describes the breadth of perils (commercial and political) within a cover product. It is not a synonym for the legal form of an export credit guarantee.